Australia: Wage pressures still look very muted – NAB

According to the analysts at NAB, Australian wage pressures still look very much muted and there are no signs of a lift in the near – term.

Key Quotes

“Annualised growth in labour costs eased slightly to 1.7% in the quarter (from 1.9%), which is below the series average of around 2.8% since 1989. Wage cost pressures have remained relatively subdued despite a steady improvement in the level of employment conditions and reports of greater difficulty finding suitable labour – although consistent with the elevated official unemployment rate. The Survey’s measures of expectations for labour costs (next 3 months) suggests a continuation of the subdued wage trend into the near term. Wage increases under EBAs are expected to average just 2.2% over the next year, or 1.4% after allowing for productivity offsets.”

“On average, businesses are now pricing in around a 60% probability of a 25bp hike in the next 12-months. In contrast, NAB Economics view is that the RBA will keep rates on hold for the foreseeable future, although the possibility that more cuts are needed is higher than the risk of rate hikes in the next 18 months. NAB Economics remain cautious about the medium-term outlook given the likely impact from flattening resource exports and slowing residential construction on growth and the labour market. Exchange rate expectations in the Survey (6-months-ahead) rose to US$0.75, which is a little lower than at the time the Survey was taken.”

“The inflation outlook remained soft, but there were some signs of expectations lifting a little, with 70% of respondents expecting inflation to remain below 3% (a little less than 6-months ago), while almost a quarter (24%) are expecting inflation of 3-4% (up from last quarter). However, only 3% of firms believe inflation is a serious problem (similar to last quarter), while 31% believe it is a minor problem (unchanged from Q4).”